Stock Up Sale
Toronto-Dominion Bank (TSX:TD)(NYSE:TD), the largest bank in Canada as measured by assets, released its fourth-quarter earnings results yesterday, and its stock has responded by falling about 2% in early trading. Let’s take a closer look at the quarterly results and the fundamentals of its stock to determine if this decline represents a long-term buying opportunity.
The fourth-quarter results
Here’s a quick breakdown of 10 of the most notable financial statistics from TD Bank’s three-month period ended October 31, 2017, compared with the same period in 2016:
| Metric | Q4 2017 | Q4 2016 | Change |
| Net interest income | $5,330 million | $5,072 million | 5.1% |
| Non-interest income | $3,940 million | $3,673 million | 7.3% |
| Total revenue | $9,270 million | $8,745 million | 6.0% |
| Adjusted net income | $2,603 million | $2,347 million | 10.9% |
| Adjusted diluted earnings per share (EPS) | $1.36 | $1.22 | 11.5% |
| Total assets | $1,278,995 million | $1,176,967 million | 8.7% |
| Total deposits | $832,824 million | $773,660 million | 7.6% |
| Total loans, net of allowance for loan losses | $612,591 million | $585,656 million | 4.6% |
| Total equity | $75,190 million | $72,564 million | 2.3% |
| Book value per share | $37.76 | $36.71 | 2.9% |
Should you buy on the dip?
It was a very strong quarter overall for TD Bank, and it capped off a great fiscal year for the company, in which its revenue increased 5.3% to $36.15 billion, and its adjusted diluted EPS increased 13.7% to $5.55 compared with fiscal 2016. With these solid results in mind, I do not think the 2% drop in its stock is warranted, and I think it represents an attractive entry point for long-term investors for two fundamental reasons.
First, it’s undervalued. TD Bank’s stock now trades at just 13.3 times fiscal 2017’s adjusted EPS of $5.55 and only 12.5 times fiscal 2018’s estimated adjusted EPS of $5.90, both of which are inexpensive given its current earnings-growth rate, its estimated 8.7% long-term earnings-growth rate, and the low-risk nature of its business model.
Second, it’s a dividend aristocrat. TD Bank currently pays a quarterly dividend of $0.60 per share, representing $2.40 per share annually, giving it a rich 3.3% yield. Investors must also note that fiscal 2017 marked the seventh consecutive year in which it had raised its annual dividend payment, and its 9.1% hike in March has it positioned for fiscal 2018 to mark the eighth consecutive year with an increase.
TD Bank’s stock is up over 13% since it released its third-quarter earnings results on August 31, and I think it is still a great long-term buy today, so take a closer look and consider initiating a position today.
